If you are trying to help your adult children find their
financial footing during the current recession, you're not
A study recently presented at a meeting of the Population
Association of America found that most
young adults today are getting a monetary boost
from Mom and Dad. According to the study, 62 percent of young
adults receive help, and it's not just pocket change. The average
amount of assistance was $12,185. The money goes for such things as
college tuition, vehicle expenses and rent.
The need for young adults to lean on their parents is
understandable. A recent study by the Pew Research Center found
only about 54 percent of people between ages 18 and
24 are employed
. Those who are working full time have experienced a greater drop
in weekly earnings -- 6 percent -- than any other age group in the
past four years.
Your children may be hurting financially, but there's no reason
to place your own finances in jeopardy in order to come to their
aid. There are a variety of ways to use insurance policies to help
them achieve financial security.
1. Create a legacy through life insurance
"Most people think life insurance is for straight death benefit
protection," says Kristen Komer, a spokesperson for MetLife. "But
life insurance is a great financial solution for those who want to
leave a legacy."
Life insurance benefits are tax-exempt, which makes this a good
way to transfer wealth from one generation to another.
2. Use a life insurance policy's cash value to provide
permanent life insurance
policy has a cash value account that grows over time. If you have
such a policy, you can tap into its cash value.
According to the Pew Research Center, 39 percent of young adults
ages 18 to 34 remain at home with their parents or have temporarily
returned because of the tough economy. Komer says borrowing against
your life insurance policy's cash value can be one way to help
children pay off loans, buy a home or start a business. That can
move them into independent living.
Marvin Feldman, president and CEO of the nonprofit Life and
Health Insurance Foundation for Education (LIFE) in Arlington, Va.,
notes that while using a permanent life policy's cash value can be
a great gift to children, parents should avoid putting themselves
in financial jeopardy.
"The first thing they need to do is consider their own financial
situation," he says. Consider whether you might need that cash
3. Buy life insurance for your child
The main reason to buy life insurance is to replace a wage
earner's income. Although it often is dismissed as unnecessary,
buying a permanent life insurance policy for a young child can be
beneficial, says Komer. "It's a great first start to getting them
some financial security, something you should think about right
For example, Komer says a $20,000 policy purchased at birth may
accumulate as much as $4,000 in cash value by age 18. With annual
premiums often less than $200, this can be a vehicle for helping a
child get cash for college or other needs.
There's a downside to borrowing against the cash value of such a
policy. Not only can it reduce the amount of cash available in the
future, but depending on the specific provisions of the plan, it
also can reduce the death benefit.
If you are planning the gift of a life insurance policy,
life insurance companies
that offer guaranteed coverage riders that allow your children to
increase their coverage level in the future without having to go
through the underwriting process. This means they'll be able to buy
more coverage in the future regardless of health conditions.
4. Keep an adult child on your health insurance
Health insurance doesn't come cheap. The Kaiser Family
Foundation found the average annual cost in 2010 for single
coverage on the individual market was $2,580. For that price, many
young adults see health insurance as a luxury.
However, thanks to a recent change in the law, you can help them
get the coverage they need. Under the Affordable Care Act, young
adults up to age 26 can remain on a parent's health insurance plan.
The provision applies regardless of a young adult's residence,
marital status or income.
5. Let your adult child stay on your auto insurance
Auto insurance is a major expense for young adults, and as long
as your child is still living at home, he or she probably can
remain on your policy.
Insurance rates for young drivers normally are high because of
their greater risk for having auto accidents. It's usually cheaper
to keep a teen on the family policy rather than putting him on his
Shop around to determine which alternative is less
Marty Draper, head of personal lines for Farmers Insurance,
reminds you to consider your own liability before adding a child's
name to an auto insurance policy. Depending on the laws in your
state as well as how the policy is set up, everyone named on the
policy potentially could be liable for damages if your child causes
an accident and is sued.
"Parents and the adult child need to work closely with their
agent to understand the specifics of their jurisdiction and how
their policy works," says Draper. For example, parents might be on
the hook for damages if their child has lower limits on the policy
than they do.
"The key for consumers is if you are going to add a kid to your
policy, even an adult child, you need to make sure you have the
proper [liability] limits," says Edie Mermelstein, a Southern
California attorney who handles insurance and consumer issues.
6. Purchase long-term care insurance
Feldman says if you purchase long-term care (LTC) insurance for
yourself, it will provide peace of mind for your children. It also
may save them money.
"It relieves the family members from making certain difficult
decisions about care," he says. "It provides a tremendous amount of
Without LTC insurance, children may have to bear the burden of
paying for your care themselves. They may have to select a
less-than-appropriate level of care because they can't afford
anything more intensive.
Another benefit of LTC insurance is that it can shield your
estate from costly medical expenses, leaving more for your children